Fertilizer Policy

For sustained agricultural growth and to promote balanced nutrient application, it is imperative that fertilizers are made available to farmers at affordable prices. With this objective, urea being the only controlled fertilizer, is sold at statutory notified uniform sale price, and decontrolled Phosphatic and Potassic fertilizes are sold at indicative maximum retail prices (MRPs). The problems faced by the manufactures in earning a reasonable return on their investment with reference to controlled prices, are mitigated by providing support under the New Pricing Scheme for Urea units and the concession Scheme for decontrolled Phosphatic and Potassic fertilizers. The statutorily notified sale price and indicative MRP is generally less than the cost of production of the irrespective manufacturing unit. The difference between the cost of production and the selling price/MRP is paid as subsidy/concession to manufacturers. As the consumer prices of both indigenous and imported fertilizers are fixed uniformly, financial support is also given on imported urea and decontrolled Phosphatic and Potassic fertilizers.

A. Urea Pricing Policy:

a) New Pricing Scheme (NPS)

i) NPS-I

New Pricing Scheme (NPS)- I for urea was introduced w.e.f. 1st April, 2003. The Stage- I of NPS was of one year duration from 1 April, 2003 to 31st March, 2004. The primary consideration and goal of the abovementioned policy was to encourage efficiency parameters of international standards based on the usage of the most efficient feedstock, state-of-art technology and also ensure viable rate of return to the units.

ii) NPS-II

The Stage-II was of two year duration from 1st April 2004 to 31st March, 2006, which was extended upto 30th September 2006. The pre-set energy norms for the urea units during Stage-II of NPS were given. As per the said policy, escalation/de-escalation was to be carried out on a quarterly/annual basis. However, if the actual energy consumption of a unit is lower than the pre-set energy norms, the resultant excess would be valued for escalation/de-escalation at the basic rate of the cheapest input.

iii) NPS-III

The Stage III of NPS was notified on 8th March, 2007 and was made effective from 1st October 2006 till 31st March 2010. The Policy for incentivizing additional production of urea during Stage-III of NPS was made applicable from the date of notification and till then additional production of urea by units beyond 100% of their capacity will be governed by the existing policy of sharing of the net gain between the Government and the unit in the ratio of 65:35.

Following amendments have been made effective in NPS III after its Notifications:

Vide Notification No. 12012/19/2007-FPP dated 10th July, 2009 for adoption of capacity utilization as 95% for post-92 naphtha based group, restricting reduction in fixed cost strictly due to group averaging principle to 10% of the normated fixed cost and detailing parameters for buffer stocking scheme.

Vide Notification No. 12014/1/2008-FPP dated 6th March 2009 regarding amendment of NPS-III – Policy for restart of existing urea units. The above scheme was applicable to the shutdown of the urea units, viz., RCF – Trombay, DIL/KFCL- Kanpur and FACT-Cochin resuming production on the existing feedstock/fuel and subsequently getting converted into gas based.

Vide Notification No. 12014/1/2008-FPP dated 6th March 2009 – Amendment of NPS-III – Policy for resumption of urea production by RCF-Trombay unit. This Notification pertains to facilitating restart of RCF – Trombay by allowing minimum fixed cost equivalent to weighted average fixed cost of gas based urea units under NPS-III with the preset energy as available to the unit under NPS I & II.

Vide Notification No. 12014/1/2008-FPP dated 6th March 2009 regarding policy for Conversion of FO/LSHS urea units to Natural gas. Provisions under notifications dated 8th February 2010 for Conversion of Fuel Oil/Low Sulphur Heavy Stock (FO/LSHS) based Urea unit at Bathinda, Nangal & Panipat of NFL to Natural Gas (NG); Provisions under notifications dated 14th December 2009 for Conversion of Fuel Oil/ Low Sulphur Heavy Stock (FO/LSHS) based Urea unit at Gujarat Narmada Valley Fertilizer Corporation (GNVFC) to Natural Gas (NG). Above notifications pertain to recognizing cost of conversion of FO/LSHS units through a special fixed cost for five years after conversion as per certain parameters. This scheme is applicable for FO/LSHS units, viz., NFL (Nangal, Bathinda and Panipat) and GNVFC-Bharuch.

Formulation of policy for existing urea beyond Stage-III of New Pricing Scheme

A Group of Minister (GoM) constituted to review the fertilizer policy has decided in the meeting held on 5th January 2011 to set up a Committee under the Chairmanship of Shri Saumitra Chaudhuri, Member, Planning Commission to examine the proposal for introduction of Nutrient Based Subsidy (NBS) in urea and to make suitable recommendations.

b) Modified NPS-III for existing urea units

Recently, the Government has notified the Modified NPS-III for existing urea units on 2nd April, 2014 in order to address the issue of under recoveries of the existing urea units due to freezing Fixed Cost at the level of costed year 2002-03. The policy will be implemented for a period of one year from the date of issue of notification. The policy envisages the continuation of calculation of concession rates of urea units as per NPS-III with certain amendments. As per the said policy, the existing urea units will be paid the maximum

additional fixed cost (towards increase in the four components, viz., salaries & wages, contract labour, selling expensed and repair & maintenance) of Rs. 350/MT to existing urea units or actual increase in above four components of fixed cost during the year 2012-13 as compared to the year 2002-03, whichever is lower. However, in respect of KFCL and BVFCL-II units, for which cost data of four components is not available either for the year 2002-03 or 2012-13, the actual increase in these four components as per the certified cost data for the latest year over and above Rs. 521/MT (weighted industry average during 2002-03) subject to maximum of Rs. 350/MT will be allowed.

The policy also provides for the grant of the minimum fixed cost of Rs. 2300/MT or actual fixed cost prevailing during 2012-13, whichever is lower, after taking into account the aforesaid additional fixed cost. This will be based on certified fixed cost data for the year 2012-13, to be provided by all urea units. Further, in order to protect the efficient units which have converted to gas and are more than 30 years old, the policy has the provision of compensating these units by way of grant of the special compensation of Rs. 150/MT.

The provision for continuation of the production of high cost naphtha based urea units namely SPIC Tuticorin, MFL Manali and MCFL Mangalore is also made under modified NPS-III till the gas availability and connectivity is provided to these units or June, 2014 whichever is earlier.

The capacity utilization of two units in post 92 Naphtha based groups namely IFFCO-Phulpur-II and CFCL-II, has been increased from 95% to 98% on par with gas based units. FICC may re-work the group average of fixed cost for these units.

B. Investment Policies in Urea Sector

A pricing policy was announced on 29.1.2004 for setting up new urea projects and expansion of existing urea projects for augmenting the domestic production capacity of urea to meet the growing demand for enhancing the agricultural production in the country. The policy aimed at enabling the entrepreneurs to decide about their investment plans in the fertilizer sector. The policy was expected to encourage setting up of plants with international efficiency standards for fresh investment in new projects and expansion of existing units.

a) New Investment Policy- 2008

This policy which was based on the principle of Long Run Average Cost (LRAC) was not successful in attracting investment in this sector. The non-availability of natural gas, which is the critical feedstock for production of urea, has also been one of the major constraints in further addition of indigenous capacity for production of urea. However with the projected improved availability of gas from 2009 onwards, it is expected that investment in fertilizer sector will also take place. Further, vide notification dated 4th September 2008, Government had notified the New Investment Policy for urea sector to attract the much required investment in this sector. The policy was based on IPP benchmark.

The policy was expected to lead to savings to the Government in the form of availability of Urea at a price below IPP and will also lead to indirect savings by bringing down the import price due to reduction in imports. The New Investment Policy aimed at revamp, expansion, revival of existing urea units and setting up of Greenfield/ Brownfield projects. The policy was likely to substantially bridge the gap in next five years between the consumption and domestic production subject to confirmed and adequate availability of gas at reasonable prices. The salient features of the New Investment Policy-2008 are as under:-

The policy is based on Import Parity Price (IPP) benchmarked with suitable floor and ceiling prices of USD 250/MT and USD 425/MT respectively.

Revamp project: Any improvement in capacity of existing plants through investment upto Rs. 1000 crore, in the existing train of ammonia-urea production may be treated as revamp of existing units. The additional urea from the revamp of existing units may be recognized at 85% of IPP with the floor and ceiling price as indicated above.

Expansion projects: Setting up of a new ammonia-urea plant (a separate new ammonia-urea train) in the premises of the existing fertilizer plants, utilizing some of the common utilities may qualify for being treated as expansion project. The investment should exceed a minimum limit of Rs.3000 crore. The urea from the expansion of existing units may be recognized at 90% of IPP, with the floor and ceiling price as indicated above.

4 Revival/Brownfield projects: The urea from the revived units of Hindustan Fertilizer Corporation Limited(HFCL) and Fertilizer Corporation of India Limited (FCIL) may be recognized at 95% of IPP with prescribed floor & ceiling price, if the revival of closed units takes placed in public sector.

Greenfield projects: The pricing of Greenfield projects may be decided based on a bidding process which will be for a discount over IPP, after firming up of the location (States) of the proposed new plants.

Gas transportation charges: An additional gas transportation cost may be paid to units undertaking expansion and revival on the basis of actuals (upto 5.2 Gcal per MT of urea) as decided by the Regulator(Gas) subject to a maximum ceiling of USD 25 per MT of urea.

Allocation of Gas: Only non-APM gas may be considered for the new investment in urea sector.

Coal gasification based Urea Projects: The Coal gasification based urea projects may also be treated on par with a revival or a Greenfield project as the case may be. In addition, any other incentives or tax benefits as provided by Government for encouraging coal gasification technology will also be extended to these projects.

Joint Ventures abroad: The Joint Venture projects abroad in gas rich countries are also proposed to be encouraged through firm offtake contracts with pricing decided on the basis of prevailing market conditions and in mutual consultation with the joint venture company. However, the principle for deciding upon the maximum price will be the price achieved under Greenfield projects or 95% of IPP as proposed for revival projects (in absence of any Greenfield projects) with a cap of USD 405 CIF India per MT and a floor of USD 225 CIF India per MT (inclusive of handling and bagging costs).

10. Time period for proposed investment policy: Only those revamp projects which start production of additional capacities within four years of notification of the new policy would qualify for the dispensation recommended above. Similarly production from expansion and revival (brownfield) units that come about within five years of notification of the new policy would qualify for dispensation provided in the policy. If the production does not come through within the stipulated time period, such brownfield projects will be treated similar to a Greenfield projects wherein price will be decided through limited bidding options. The time period for setting up of new Joint Ventures would also be five years under the new investment policy.

b) New Investment Policy – 2012

The Government had notified the New Investment Policy (NIP)-2012 on 2nd January, 2013 to facilitate fresh investment in urea sector in future to reduce India’s import dependency in urea production.

The salient features of NIP – 2012 are as follows:-

The policy supports gas based plants only.

It has structure of a flexible floor and ceiling price calculated at delivered price of gas from US $6.5 to US $ 14/mmbtu.

The floor price has been determined at a Return on Equity (RoE) of 12% and the ceiling price at a RoE of 20%.

For Greenfield/Revival and Brownfield Projects, the floor and ceiling shall increase in tandem with increase in delivered gas price i.e. every USD 0.1/mmbtu increase in delivered gas price will increase the floor and ceiling by USD 2/MT upto delivered gas price of USD 14/mmbtu.

Beyond delivered gas price of USD 14/mmbtu, only floor will be increased.

For Revamp Projects, floor and ceiling have been linked to delivered gas price of USD 7.5/mmbtu and floor and ceiling shall increase by USD 2.2/MT for every increase in delivered gas price of 0.1/mmbtu.

It supports revival of closed units.

It encourages investment by Indian industry in Joint Venture abroad in resource rich countries

The policy incentivizes units to produce urea in granulated or coated/fortified form to improve the efficiency in the use of Urea with additional amount of USD 10/MT allowed in floor and ceiling prices.

For units in North Eastern states, the special dispensation regarding gas price that is being extended by GOI/State governments will be available to any new investment. Suitable adjustments will be made to applicable floor and ceiling price in case the delivered price (after allowing for special dispensation) falls below USD 6.5 per mmbtu, subject to approval of Ministry of Finance.

The policy is applicable to all units whose production starts within five years from the date of notification and has dispensation of guaranteed buy back for eight years from date of start of production.

Amendment in NIP-2012

As per deliberation and discussion held in the meeting on 01.07.2013 under Chairmanship of PS to Hon’ble Prime Minister, it was decided to move an amendment in New Investment Policy-2012 through CCEA for substituting the phrase “guaranteed buyback” with expression that subsidies will be given only upon domestic sale as at present with proper safeguards.

This Department has issued Amendment to New Investment Policy (NIP) - 2012 on 07th October, 2014. In this regard, this department has received twelve proposals from the project proponents. Further, this Department is examining these proposals in the light of the provisions of the NIP-2012 and amendments thereof.

1 Historical Background:

1.1 Since independence, Government of India has been regulating sale, price and quality of fertilizers. For this purpose, Government of India has passed Fertilizer Control Order (FCO) under Essential commodity Act (EC Act) in the year 1957. In order to regulate the distribution of fertilizer, Movement Control Order was passed in 1973. No subsidy was paid on Fertilizers till 1977 except Potash for which subsidy was paid only for a year in 1977.

1.2 On the recommendation of the Maratha Committee, the Government had introduced Retention Price Scheme (RPS) for nitrogenous fertilizers in November 1977. Subsequently, RPS was extended to phosphatic and other complex fertilizers from February 1979 and to Single Super Phosphate from May 1982, which continued up to 1991. Later on, subsidy was also extended to imported phosphatic and potassic (P&K) fertilizers.

In early 1990s, the country was facing mounting fiscal deficit and there was an impending danger of foreign exchange crisis. In order to contain the subsidy burden, Government announced an increase of 40% in the price of fertilizers in July, 1991. Some of the fertilizers which were under the subsidy scheme were decontrolled. Subsequently, apprehending low consumption of fertilizer due to increase in prices and consequently, low agriculture productivity, Government rolled back 10% of increase in Urea price.

1.3 In December 1991, Government set up a Joint Parliamentary Committee (JPC) on Fertilizer Pricing to review the existing methods of computation of retention prices for different manufactures of fertilizers and to suggest measures for reducing fertilizers prices without straining the exchequer. JPC submitted its report on 20th August 1992. The main conclusions and recommendations of the Committee were that the rise in subsidy was mainly due to increase in the cost of imported fertilizers, de-valuation of rupee in July 1991 and the stagnant farm gate prices from 1980 to 1991. The Committee did not favour total decontrolled of fertilizers but recommended decontrol of import based phosphatic and Potassic fertilizers along with a marginal 10% reduction in the consumer price of Urea.

2 Concession Scheme for P&K Fertilizers:

2.1 Based on the recommendations of Joint Parliamentary Committee, Government of India decontrolled all Phosphatic and Potassic (P&K) fertilizers namely DAP, MOP, NPK complex fertilizers and SSP with effect from 25th August 1992 which were under Retention Price Scheme (RPS) since 1977 except Urea which continued to remain under RPS. Since subsidy was retained on the Nitrogenous fertilizers (Urea) while phosphatic fertilizers were decontrolled, the prices of phosphatic fertilizers in the market became comparatively high. As a result, production and consumption of nitrogenous fertilizers increased and consumption of P&K fertilizers decreased. This led to severe imbalance in consumption of nitrogenous, phosphatic and Potassic fertilizers. Fearing imbalance fertilization of the soil, un affordability by farmers due to increase in phosphatic and potassic fertilizer prices, Government of India announced ad hoc Concession Scheme for phosphatic and potassic fertilizers from Rabi 1992 to cushion the impact of price hike with a view to encourage balanced fertilizer consumption.

2.2 The basic purpose/objective of the Concession Scheme for P&K fertilizers has been to provide P&K fertilizers to the farmers at affordable prices so as to increase the food productivity in the country through balanced use of fertilizers. The concession scheme was also aimed at ensuring reasonable rate of return on the investments made by the entrepreneurs in the fertilizer sector.

2.3 Initially, the ad-hoc Concession Scheme was applicable on DAP, MOP, NPK Complex fertilizers. This scheme was also extended to SSP from 1993-94. Concession was disbursed to the manufacturers/importers by the State Governments during 1992-93 and 1993-94 based on the grants provided by Department of Agriculture & Cooperation(DAC).

2.4 During 1997-98, Department of Agriculture & Cooperation also started indicating an all India uniform Maximum Retail Price (MRP) for DAP/NPK/MOP. The responsibility of indicating MRP in respect of SSP rested with the State Governments. The Special Freight Subsidy Reimbursement Scheme was also introduced in 1997 for supply of fertilizers in the difficult areas of J&K and North-eastern States, which continued upto 31.3.2008. The total delivered cost of fertilizers being invariably higher than the MRP indicated by the Government, the difference in the delivered price of fertilizers at the farm gate and the MRP was compensated by the Government as subsidy to the manufacturers/importers.

2.5 Till 30th September 2000, the issues relating to fertilizer subsidy was being looked after by DAC and thereafter it was continued by Department of Fertilizers with changed parameters from time to time. The MRP of P&K fertilizers were revised on 28.2.2002, which continued upto 31.3.2010 in case of DAP and MOP. However, in case of complex fertilizers, the MRP was revised on 18.6.2008.

2.6 The MRP of SSP, which was used to be declared by the respective State Governments up to 30th April, 2008, was announced by DOF at Rs. 3400/MT uniformly all over the country. w.e.f.1.5.2008 to 30.9.2009 and subsidy on SSP was decided by DOF on monthly basis based the report of Cost Account Brach. MRP of SSP was left open w.e.f. 1.10.2009 to 30.4.2010 and a fixed of Rs 2000 PMT was paid on SSP as subsidy.

3 Computation of Subsidy on P&K fertilizers under Concession Scheme:

3.1 The computation of subsidy on P&K fertilizers was based on Cost Price Study on DAP and MOP conducted by Bureau of Industrial Costs and Prices (BICP) now called Tariff Commission (TC). The subsidy rates were decided on the cost plus approach on quarterly basis w.e.f. 1.4.1999. The total delivered cost of the fertilizers being invariably higher than MRP indicated by the Government, the difference between delivered price of fertilizers at farm gate level and the MRP was compensated by Government in the form of subsidy.

3.2 The Government introduced a new methodology for working out subsidy on complex fertilizers w.e.f. 1.4.2002 based on the recommendation of TC. The complex manufacturers were divided into two groups based on feed stock for sourcing nitrogen i.e. Gas and Naphtha. With passage of time, DAP industry started using different raw materials such as Rock Phosphate for producing phosphoric acid. DOF framed a proposal suggesting methodology to link phosphoric acid price with international DAP price. The matter was referred to Expert Group under chairmanship of Prof. Abhijit Sen. The report of this Group was submitted in October 2005 and considered by Inter-Ministerial group. TC conducted fresh cost price study of DAP/MOP and NPK complexes and submitted its report in December 2007. Based on this TC report, the subsidy was calculated on monthly basis till 31.3.2010.

4 MRP of P&K fertilizers under Concession Scheme:

The MRP was fixed by the Government with effect from 1.4.1997 and the details of MRP fixed by the Government from 1997 to 31.3.2010 are mentioned in the table below:

W.e.f. 1.5.2008 to 30.9.09 all India MRP of Rs. 3400 PMT fixed by Govt. W.e.f 1.10.2009 to April 2010, MRP was open fixed by SSP units.

5 Impact of Concession Scheme:

5.1 The MRP of P&K fertilizers were much lower than its delivered cost. This led to increase in consumption of fertilizers during the last three decades and consequently increase in food grain production within the country. However, it was observed in last few years that the marginal response of agricultural productivity to additional fertilizer usage in the country had fallen sharply, leading to near stagnation in agricultural productivity and consequently agricultural production. The disproportionate NPK application, rising multi-nutrient deficiency and lack of application of organic manures leading to reduction in carbon content of the soil, was attributed to the stagnating agricultural productivity. The fertilizer sector worked in a highly regulated environment with cost of production and selling prices being determined by the Government of India. Due to this fertilizer industry suffered from low profitability as compared to other sectors. The growth of fertilizer industry was stagnated with virtually no investments for the past 11 years in urea sector and for over eight years in P&K sector. The fertilizer industry had no incentive to invest on modernization and for increasing efficiency. The innovation in fertilizer sector also suffered as very few products were introduced by fertilizer companies, since they get out priced by subsidized fertilizers. The industry had no incentive to focus on farmers leading to poor farm extension services, which were necessary to educate farmers about the modern fertilizer application techniques, soil health and promote soil test based application of soil and crop specific fertilizers.

5.2 The subsidy outgo of Government also increased exponentially by 500% during the past five years (2005-06 to 2009-10) under the Concession Scheme with about 94% of the increase caused by increase in international prices of fertilizers and fertilizer inputs, and only 6% attributable to increase in consumption.

5.3 It was, thus, observed that over the last few years the product based subsidy regime (erstwhile concession scheme) had been proving to be a losing proposition for all the stake holders viz farmers, industry and the Government. Accordingly, considering all the issues relating to agriculture productivity, balanced fertilization and growth of indigenous fertilizer industry, competiveness amongst the fertilizer companies and to overcome the deficiency of concession scheme, the Government introduced Nutrient Based Subsidy (NBS) Policy for P&K fertilizers w.e.f 1.4.2010.

6 Nutrient Based Subsidy (NBS) Policy (w.e.f 1.4.2010):

6.1 The Department is implementing NBS Policy for P&K fertilizers w.e.f. 1.4.2010. Under the NBS Policy, a fixed rate of subsidy (in Rs. per Kg basis) is announced on nutrients namely Nitrogen (N), Phosphate (P), Potash (K) and Sulphur (S) by the Government on annual basis. The salient features of NBS Policy are as under:

An Inter-Ministerial Committee (IMC) has been constituted with Secretary (Fertilizers) as Chairperson and Joint Secretary level representatives of Department of Agriculture & Cooperation (DAC), Department of Expenditure (DOE), Planning Commission and Department of Agricultural Research and Education (DARE). This Committee recommends per nutrient subsidy for ‘N’, ‘P’, ‘K’ and ‘S’ before the start of the financial year for decision by the Government (Department of Fertilizers). The IMC recommends a per tonne additional subsidy on fortified subsidized fertilizers carrying secondary (other than ‘S’) and micro- nutrients. The Committee also recommends inclusion of new fertilizers under the subsidy regime based on application of manufacturers/ importers and its need appraisal by the Indian Council for Agricultural Research (ICAR), for decision by the Government.

The per Kg subsidy rates on the nutrient N, P, K, S is converted into per Tonne subsidy on the various P&K fertilizers covered under NBS Policy.

Any variant of the fertilizers covered under the subsidy scheme with micronutrients namely Boron and Zinc, is eligible for a separate per tonne subsidy to encourage their application along with primary nutrients.

Under the NBS regime, MRP of P&K fertilizers has been left open and fertilizer manufacturers/marketers are allowed to fix the MRP at reasonable rates.

MRP of P&K fertilizers has been left open and fertilizer manufacturers/marketers are allowed to fix the MRP at reasonable rates. In effect, the domestic prices are determined by demand supply mechanism.

The distribution and movement of fertilizers along with import of finished fertilizers, fertilizer inputs and production by indigenous units is monitored through the online web based “Fertilizer Monitoring System (FMS)” as was being done under the Concession Scheme for P&K fertilizers.

20% of the decontrolled fertilizers produced/imported in India has been placed in the movement control under the Essential Commodities Act 1955 (ECA). Department of Fertilizers regulates the movement of these fertilizers to bridge the supplies in underserved areas.

In addition to NBS, freight for the movement and distribution of the decontrolled fertilizers by rail and road is being provided to enable wider availability of fertilizers even in the remotest places in the country.

Import of all the subsidized P&K fertilizers, including complex fertilizers has been placed under Open General License (OGL). NBS is available for imported complex fertilizers also except Ammonium Sulphate. However, in case of Ammonium Sulphate (AS) the NBS is applicable only to domestic production by M/s FACT.

Though the market price of subsidized fertilizers, except Urea, is determined based on demand-supply dynamics, the fertilizer companies are required to print Retail Price (RP) along with applicable subsidy on the fertilizer bags clearly. Any sale above the printed MRP is punishable under the EC Act.

Manufacturers of customized fertilizers and mixture fertilizers have been permitted to source subsidized fertilizers from the manufacturers/ importers after their receipt in the districts as inputs for manufacturing customized fertilizers and mixture fertilizers for agricultural purpose. However, no separate subsidy is provided on sale of customized fertilizers and mixture fertilizers.

A separate additional subsidy is also provided to the indigenous manufacturers producing complex fertilizers using Naphtha based captive Ammonia to compensate for the higher cost of production of ‘N’ for a maximum period of two years w.e.f. 1.4.2010 to 31.3.2012 during which the units are required to convert to gas or use imported Ammonia as feedstock. The quantum of additional subsidy is finalized by Department of Fertilizers in consultation with DOE, based on study and recommendations by the Tariff Commission.

The NBS is passed on to the farmers through the fertilizer industry. The payment of NBS to the manufacturers/importers of P&K fertilizers is released as per the procedure notified by the Department.

6.2 The per kg NBS rate and per Metric Tonne subsidy on different grade of P&K fertilizers announced by the Government during the year 2010-11 to 2014-15 is as under:

Per Kg NBS rates for nutrients NPKS for the 2010-11 to 2014-15 (in Rs. per Kg)

Nutrients

1st Apr - 31st Dec 2010 *

1st Jan- 31st Mar 2011**

2011-12

2012-13

2013-14

2014-15

‘N’ (Nitrogen)

23.227

23.227

27.153

24.000

20.875

20.875

‘P’ (Phosphate)

26.276

25.624

32.338

21.804

18.679

18.679

‘K’ (Potash)

24.487

23.987

26.756

24.000

18.833

15.500

‘S’ (Sulphur)

1.784

1.784

1.677

1.677

1.677

1.677

*Including Rs. 300/- per MT for secondary freight from rake point to retail points.

** Excluding the secondary freight of Rs. 300/- PMT, which was being paid separately on per ton per Km basis.

Per MT subsidy on different grade of P&K fertilizers during the year 2010-11 to 2014-15 (in Rs. PMT)

Under the NBS Policy, a separate additional subsidy is also provided to the indigenous manufacturers such as M/s FACT, M/s MFL and M/s GNVFC producing complex fertilizers using Naphtha based captive Ammonia to compensate for the higher cost of production of ‘N’ for a maximum period of two years (upto 31.3.2012) during which the units are required to convert to gas or use imported Ammonia as feedstock. The quantum of additional subsidy will be finalized by Department of Fertilizers in consultation with DOE, based on study and recommendations by the Tariff Commission. The above said additional compensation has been extended beyond 31.3.2012 to 4.10.2013 for M/s FACT only and the proposal of extension of additional compensation beyond 31.3.2012 for M/s MFL & GNFVC is under consideration in the Department. Pending finalization of Tariff Commission’s Report, the Department has announced ad hoc rate of additional compensation to M/s FACT, M/s GNVFC & M/s MFL as under

Companies

Fertilizer Products

Amount of adhoc additional compensation (Provisional)

(in Rs. Per MT)

Earlier (ref. circular dated 22.10.2010

Revised on 29.4.2011 (w.e.f. 1.4.2010)

Further revised on 16.1.2014 (w.e.f. 1.4.2012 to 4.10.2013)

FACT, Cochin

20-20-0-13S

2331

3121

5268

Amm. Sulphate

(20.6-0-023)

2792

3658

6343

MFL, Manali

20-20-0-13S

4784

5434

Under consideration

17-17-17-0

4079

4640

GNVFC, Bharuch

20-20-0-0

1914

2534

6.4 Prices (MRP) of P&K fertilizers under NBS regime:

Our country is fully dependent on imports in Potassic sector and to the extent of 90% in Phosphatic sector in the form of either finished products or its raw material. Subsidy being fixed, any fluctuation in international prices has effect on the domestic prices of P&K fertilizers.

A Statement showing MRP of P&K fertilizers during the year 2010-11 to 2013-14 is at Annexure-I.

6.5 Reasonableness of MRP:

Under NBS policy companies are allowed to fix the MRP on their own. The intention behind introduction of NBS was to increase competition among the fertilizer companies to facilitate availability of diversified products in the market at reasonable prices. However, the prices of P&K fertilizers have gone up substantially and doubts have been raised about reasonableness of the prices fixed by the companies. The prices have gone up substantially on the account of increase in prices of raw materials / finished fertilizers in international market, depreciation of Indian rupee w.r.t US Dollar and also due perhaps to larger profit margins by the companies. This has lead to lot of hue and cry from the various quarters and has also lead to imbalance in use of fertilizers. Accordingly, in order to check the prices fixed by P&K companies, the Government vide notification dated 8.7.2011 directed the fertilizer companies to fix the prices of P&K fertilizers at reasonable level under the NBS regime.

6.5.1 In order to ensure reasonableness of prices fixed by fertilizer companies, while announcing the NBS Policy and rates for the year 2013-14, the following clauses have been incorporated in NBS Policy applicable with effect from 1.4.2012:

(i) It shall be mandatory for all the fertilizer companies to submit, along with their claims of subsidy, certified cost data in the prescribed format and as per the requirement for the purpose of monitoring of MRPs of P&K fertilizers fixed by the fertilizer companies.

(ii) In cases, where after scrutiny, unreasonableness of MRP is established or where there is no correlation between the cost of production or acquisition and the MRP printed on the bags, the subsidy may be restricted or denied even if the product is otherwise eligible for subsidy under NBS. In proven case of abuse of subsidy mechanism, DOF, on the recommendation of IMC may exclude any grade/grades of fertilizers of a particular company or the fertilizer company itself from the NBS scheme.

(iii) The reasonableness of MRP will be determined with reference to the MRP printed on the bags.

(iv) The companies shall continue to submit the certified cost data as per the requirement and direction of DOF from time to time. The companies shall also report MRPs of P&K fertilizers regularly to DOF.

(v) The P&K companies should have the same MRP printed on the bags as applicable for each State in FMS. In other words, there should not be any difference in MRP printed on the fertilizer bags and that reported in the FMS for a particular state.

(vi) The fertilizer companies henceforth will certify the correctness of MRPs of their products entered in FMS while claiming ‘On Account’ claims for a particular month and also ensure that the MRPs are updated in the FMS upto the date of submission of bill.

6.6 Monitoring of MPR of P&K fertilizers:

In order to monitor the prices of P&K fertilizers fixed by fertilizer companies, they have been asked to submit cost data of the P&K fertilizers under NBS scheme from 2012-13 onwards on six monthly basis. In order to collect actual farm gate prices of P&K fertilizers, the Department is evolving a mechanism in consultation with Department of Consumer Affairs and other concerned Organizations.

(a) The freight subsidy for distribution/movement of subsidized P&K fertilizers (except SSP) under the NBS Policy w.e.f. 1.4.2010 to 31.12.2010 was restricted to the rail freight, whereas the secondary freight (from rake point to districts) was assumed to be part of the fixed subsidy. Freight reimbursement on account of direct road movement was made payable as per the actual claim subject to the equivalent rail freight upto a maximum of 500 Kms.

(b) W.e.f. 1.1.2011 to 31.3.2012, freight on account of Primary Movement (by rail from the plant or the port to various rake points) and Secondary Movement (by road from nearest rake points to the block headquarters in the Districts) of all P&K fertilizers (except SSP) was reimbursed as per the Uniform Freight Subsidy policy applicable to urea during the period. Freight subsidy for Direct Road Movement (by road from plant or port to blocks) of all P&K fertilizers (except SSP) was reimbursed as per actual claim subject to the equivalent rail freight upto a maximum of 500 Kms. The rates for reimbursement of freight for direct road movement from 1.4.2010 to 31.3.2012 were as under:

Movement(K.M.)

Rates Rs. per MT

Upto 100

108

101-200

183

201-300

256

301-400

327

401-500

400

(c) W.e.f. 1.4.2012, freight subsidy for P&K fertilizers is as under:

(i) Freight on account of Primary Movement of all P&K fertilizers (except SSP) is reimbursed on the basis of actual rail freight, as per the railway receipts.

(ii) No reimbursement on account of Secondary Movement of all P&K fertilizers (including SSP), is provided.

(iii) Freight subsidy for Direct Road Movement of all P&K fertilizes (excluding SSP) is reimbursed as per the actual claims subject to equivalent rail freight to be announced by DOF time to time. However, the maximum allowable distance under the direct road movement shall be 500 KMs.

(iv) Special compensation on account of Secondary movement for all P&K fertilizers (except SSP) is provided for difficult areas namely Himachal Pradesh, Uttarakhand, Sikkim, J&K, 7 North Eastern states and A&N Islands.

6.8 Procedure for Payment of subsidy under NBS:

(a) P&K Fertilizers except SSP: 85% (90% with Bank Guarantee) of the subsidy claims of fertilizer companies is paid as ‘on account’ payment on receipt of fertilizers in the district on certification by the Company’s Statutory Auditor. The balance 15-10% is released on State government’s certification of quantity in m-FMS and fertilizer receipt confirmation by retail dealers through mobile Fertilizer Monitoring System (m-FMS).

(b) SSP: 85% (90% with Bank Guarantee) of the claim of subsidy is paid as ‘on account’ payment on 1st point sale of fertilizers in the districts on certification by the Company’s Statutory Auditor. The balance 10-15% claim is released subject to State Government’s certification on quantity and quality in m-FMS as well as fertilizer receipt confirmation by retail dealers through m-FMS.

7. Concession Scheme/Nutrient Based Subsidy for SSP

After decontrol of P&K fertilizers, Concession Scheme for SSP was introduced w.e.f. 1993- 94, which continued on ad-hoc basis for concession upto 30.4.2008. After the transfer of the administration of the Concession Scheme from Department of Agriculture & Cooperation to DOF w.e.f. October 2000, DOF revised the guidelines. Accordingly, a Technical Audit and Inspection Cell (TAC) under the aegis of PDIL was constituted vide guidelines dated 17.5.2001. The SSP manufacturers were required to use only those grades of Rock Phosphate, which has been notified by DOF from time to time, for claiming payment of concession. All the new SSP manufacturing units were required to undergo first time technical inspection of the units to ascertain their technical competence to manufacture SSP of the standards laid down under the FCO. Subsequently, the units were also required to undergo six monthly inspection to ascertain as to whether the units are working as per the tenets of the Concession Scheme.

The units were allowed to claim 85% 'On Account' payment of concession to be settled subsequently by DOF based on the certification of sales issued by the State Governments in prescribed Proforma 'B'. This practice has also been allowed to continue till date though the other policy parameters for SSP have been changed from time to time.

The Government vide notification dated 25.8.2008 revised the Concession Scheme for SSP w.e.f. 1.5.2008, which continued upto 30.9.2009. As per this policy, Department of Fertilizers announced All India MRP at Rs. 3400 PMT in place of the earlier system of indicating MRP by each State. As per the policy-dated 25.8.2008, the concession rates were announced month-wise separately for SSP based on the imported Rock Phosphate and that based on indigenous Rock Phosphate. The Concession was escalated/ de-escalated based on the rise/fall of the prices of the raw materials of Rock Phosphate, Sulphur and also the exchange rate. In order to ensure quality of SSP, the SSP manufacturers are required to produce a certificate of quality issued by the State Governments in which the units are located. The units are required to write/print "Quality Certified" on each bag of the SSP.

The Department vide notification dated 13.8.2009 further revised concession scheme for SSP policy which was effective from 1.10.2009 to 30.4.2010. As per this policy, the Government decided to leave the selling price of SSP open w.e.f. 1.10.2009 instead of the earlier MRP of Rs. 3400 PMT on all India basis and provided adhoc concession for an amount of Rs. 2000 PMT for powdered, granulated and boronated SSP. Only those SSP manufacturers were allowed to claim subsidy, which produced 50% of the annual installed capacity or 40,000 MTs per annum. The system of releasing 'On Account' as well as balance payment of concession continued as it was.

W.e.f. 1.5.2010, the Nutrient Based Subsidy Policy has also been extended to SSP.

The rate of subsidy and MRP of SSP during the year 1993-94 to 2014-15 is as under:

Period

Rate of Subsidy

MRP (in Rs PMT

Under Concession Scheme

1993-94 to 2007-08

Different amount of subsidy

Upto 30.4.2008, MRP was fixed by respective State Governments for sale of SSP within their State

2008-09

(1.5.2008 to 30.9.2009)

Month-wise subsidy announced by GOI as mentioned below Table-A

W.e.f. 1.5.2008 to 30.9.2009, All India MRP of Rs. 3400 PMT

2009-10

(1.10.2009 to 30.4.2010)

Rs. 2000 PMT

W.e.f 1.10.2009 to 30.4.2010, MRP open

Under NBS scheme

May 2010 to Dec.2010

4400

MRP under control as per MOU (Rs. 3200 per MT)

Jan. 2011 to March 2011

4296+Rs. 200 freight

April 2011 to March 2012

5359

open MRP w.e.f. 3.5.2011

April 2012 to March 2013

3673

open MRP

April 2013 to March 2014

3173

open MRP

April 2014 to March 2015

3173

open MRP

Table A

Rate of Concession for SSP for the period May 2008 to September 2009 under Concession Scheme for SSP (Policy Notification No. 22011/4/2007-MPR dated 25.8.2008 was based on report of Cost Account Branch 2004) (Fixed all India MRP of Rs. 3400/- PMT and month-wise concession applicable for imported and indigenous Rock)

Month/year

Rates of Concession based on Imported Rock Phosphate

(Rs. PMT)

Rates of Concession based on Indigenous Rock Phosphate

(Rs. PMT)

May, 2008

6406

4587

June, 2008

8942

5383

July, 2008

9160

5674

August, 2008

10391

6776

September, 2008

11661

6990

October, 2008

13003

5823

November,2008

7914

3070

December, 2008

8965

2012

January, 2009

8075

1967

February, 2009

7503

1961

March, 2009

5870

1944

April, 2009

2927

1873

May, 2009

2709

2006

June, 2009

2453

1982

July, 2009

2510

1986

August 2009

1951

2331

September 2009

2251

2295

8. Quality of Fertilizers

The Government of India has declared fertilizer as an essential commodity under the Essential Commodities Act, 1955 (ECA) and has notified Fertilizer Control Order, 1985 (FCO) under this Act. Accordingly, it is the responsibility of the State Governments to ensure the supply of quality of fertilizers by the manufacturers/importers of fertilizers as prescribed under the FCO under the ECA. As per the provision of the FCO, the fertilizers, which meet the standard of quality laid down in the order can only be sold to the farmers. There are 71 fertilizer testing laboratories including four laboratories of the Government of India at Faridabad, Kalyani, Mumbai and Chennai with an annual analyzing capacity of 1.34 lakh samples. The quality of the fertilizers imported in the Country is invariably checked by the fertilizer quality control laboratories of the Government of India.

The State Governments are adequately empowered to draw samples of the fertilizers anywhere in the Country and take appropriate action against the sellers of Non- Standard fertilizers. The penal provision includes prosecution of offenders and sentence if convicted up to seven years imprisonment under the ECA, 1955 besides cancellation of authorization certificate and other administrative action. The Department of Fertilizers make deductions along with penal interest on the quantity of the fertilizers for which the State Governments have reported to be Non- Standard.

Payment of concession for P&K fertilizers and for Single Super Phosphate (SSP) is made by the Department taking into account the certificate of quality given by the respective State Governments in Proforma 'B' for the fertilizers received and sold in the State. Further, SSP units are required to produce month-wise 'Quality Certificates' issued by the State Governments of the State in which the units are located. The units are required to have well equipped laboratory to test the sample of its SSP.

The SSP units are also required to print 'Quality Certified' on each bag released in the market. DOF also deputes PDIL to conduct first time technical inspection of the new SSP units. PDIL conducts six monthly inspections of the SSP units to check the quantity and quality of the fertilizers for which the units are claiming payment of subsidy. The units are also required to use only those grades of Rock Phosphate as inputs for manufacturing SSP under the NBS, which are notified by DOF from time to time. A statement showing the notified grades is at Annexure-XIII. DOF has also asked the State Government to constitute teams with that of PDIL to test samples of Single Super Phosphate (SSP) at the retailer level. The marketers of the SSP are also responsible for the quality of the fertilizer marketed by them. Department of Fertilizers has also constituted vigilance teams of the Officers of the Department to check the availability and quality of the fertilizers in the States.

9. Subsidy outgo on P&K fertilizers and Urea during the last 10 years:

(in Rs. Crore)

Year

Subsidy on P&K

fertilizers

Subsidy Regime for P&K fertilizers

Subsidy on Urea

Subsidy Regime for urea fertilizer

Total subsidy outgo (P&K and Urea)

2005-06

6596.19

Concession Scheme

12793.45

New Pricing Scheme

19389.64

2006-07

10298.12

17721.43

28019.55

2007-08

16933.80

26385.36

43319.16

2008-09

65554.79

33939.92

99494.71

2009-10

39452.06

24580.23

64032.29

2010-11

41500.00

NBS regime

24336.68

65836.68

2011-12

36107.94

37683.00

73790.94

2012-13

30576.10

40016.00

70592.10

2013-14

29426.86

41853.30

71280.16

2014-15 (BE)

24670.30

47400.00

72070.30

10 Study on the impact of NBS Policy:

In order to have better results in implementation of NBS Policy, the Department has assigned the task of study of impact of NBS policy to a consultancy firm namely M/s Ernst & Young(EY).The key focus areas of the Study are as under:

(i) Impact of NBS Policy on prices and availability of fertilizers in India.

(ii) Impact of NBS Policy on balance fertilization of soil and its impact on agricultural productivity.

(iii) Mechanism to ascertain ‘reasonability’ of MRP.

(iv) Identification of additional mechanism under NBS policy to make it more effective in achieving its objectives.

(v) Monitoring and regulation of prices.

(vi) Price Discovery and Fixation of Prices.

The report received from M/s EY has been circulated to concerned Ministries for their comments. The Department will take appropriate measures in this regard after examination of comments received from concerned Ministries/Departments and stake holder companies.

Highest Maximum Ratail Price (MRP) in Rs/MT of P&K fertilizers fixed by the fertilizer companies under the Nutrient Based Subsidy regime

#

Grades of Fertilizers

10-11(Qtr. Wise)

11-12(Qtr. Wise)

2012-13(Qtr. Wise)

2013-14 (Qtr. Wise)

I

II

III

IV

I

II

III

IV

I

II

III

IV

I

II

III

IV

1

DAP : 18-46-0-0

9950

9950

9950

10750

12500

18200

20297

20000

24800

26500

26500

26500

26520

25000

24607

24607

2

MAP : 11-52-0-0

9950

NA

NA

NA

18200

20000

20000

20000

24200

24200

NA

NA

NA

NA

NA

3

TSP : 0-46-0-0

8057

8057

8057

8057

8057

8057

17000

17000

17000

NA

NA

17000

NA

17000

17000

NA

4

MOP : 0-0-60-0

5055

5055

5055

5055

6064

11300

12040

12040

16695

23100

24000

18750

18638

17750

17750

17750

5

16-20-0-13

6620

6620

6620

7200

9645

14400

15300

15300

15300

18200

18200

18200

17280

17710

17510

17010

6

20–20–0-13

7280

7280

7395

8095

11400

14800

15800

15800

19000

24800

19176

24800

20490

19166

23500

23500

7

23–23–0-0

NA

NA

NA

7445

7445

7445

Excluded from NBS Policy

8

10–26–26-0

8197

NA

8300

10103

10910

16000

16633

16386

21900

22225

22225

22225

22213

22200

21160

21160

9

12–32–16-0

8637

8237

8637

9437

11313

16400

16500

16400

22300

23300

22500

24000

23300

23300

21475

21105

10

14–28–14-0

NA

NA

NA

NA

14950

17029

NA

NA

NA

NA

NA

NA

NA

NA

NA

11

14–35–14-0

NA

NA

NA

9900

11622

15148

17424

17600

17600

23300

23300

23300

23300

23300

21810

21810

12

15–15–15-0

NA

NA

NA

7421

8200

11000

11500

11500

13000

15600

15600

15600

15600

15150

15150

15150

13

AS: 20.3-0-0-23

8600

8600

7600

8700

7600

11300

10306

10306

11013

11013

11013

11013

11106

11106

11184

11689

14

20-20-0-0

5943

NA

6243

7643

9861

14000

15500

18700

18700

24450

24450

18500

15561

15262

18000

18000

15

28–28–0-0

NA

NA

NA

11181

11810

15740

18512

18700

24720

24720

23905

23905

23905

23410

21907

21907

16

17–17–17-0

17710

20427

20522

20572

20672

20672

22947

24013

23231

17

19–19–19-0

18093

19470

19470

19470

NA

NA

0

20915

20915

18

SSP(0-16-0-11)*

3200

3200

3200

3200

3200

4000 to 6300

6500 to 7500

6200-9900

9270

10300

9270

19

16-16-16-0

7100

7100

7100

15200

15200

15200

18000

18000

17000

20

DAP lite (16-44-0-0)

NA

11760

17600

19500

19500

19500

24938

24938

24938

24938

23875

22900

22000

21

15-15-15-09

6800

9300

12900

15750

14851

15000

15000

15000

NA

NA

0

15670

22

24-24-0-0

7768

9000

11550

14151

14297

14802

16223

16223

18857

18857

17896

17896

17896

23

13-33-0-6

16200

17400

17400

17400

17400

17400

Excluded from NBS Policy

24

MAP lite (11-44-0-0)

16000

18000

18000

18000

21500

21500

25

DAP lite-II(14-46-0-0)

14900

18690

18300

18300

24800

24800

MRP is exclusive of Taxes

Fertilizers grade mentioned at Sr No 7,23,24,25 are not under subsidy scheme presently.

Blank space/NA means not available in the market/not under subsidy scheme.